From a purely legal standpoint, an angel investor (or “business angel investor”) is a “high net worth individual,” usually an accredited investor (as the term is defined in Regulation D under the Securities Act of 1933 or SEC Rule 501) who invests his or her own funds in private companies, typically at the seed and early stages.
To most companies, though, angel investors are much more: they often bring expertise or affinity for that company’s product, market or management team, in addition to taking additional financial risks. Many serve as active advisors or mentors for entrepreneurs, provide additional relationships to aid the business’ growth, and supply industry and entrepreneurial experience.
Broadly, these individuals fall into four categories as defined by a study on angel investors by MIT’s Entrepreneurship Center:
Guardian Angels, who bring both entrepreneurial and industry expertise. Many have
been successful entrepreneurs in the same sector as the new companies they back.
Entrepreneur Angels, who have experience starting companies but come from different
industry sectors.
Operational Angels, who bring industry experience and expertise, but generally from
large, established companies, and may lack first-hand experience with the travails of a
startup.
Financial Angels, who typically invest purely for the financial return.
All are present within today’s angel organizations, but many groups form around similar types of investors. Some groups have arisen out of industry trade associations, while others have started from a cadre of professionals with shared interests.
"Angels were operating quietly, as a relatively unknown entity, until the seminal paper published in 1983 by William Wetzel that recognized their unique contributions to the financing of high growth entrepreneurial ventures. The 1983 paper also marked the emergence of the study of Angels as an academic field and began the search to uncover the ABC’s (attitudes, behavior and characteristics) and these critical seed investors."